Archive for January, 2012|Monthly archive page

Unraveling this mystery has challenged companies in every industry for decades. Managers can utilize “carrots” (e.g., increased pay, promotion), “sticks” (e.g., censure, demotion) or insecurity (e.g., threaten recession-induced layoffs) to increase performance. However when it comes to some individuals and cultures, these strategies often fail to yield the desired results. New research summarized in Harvard Business School’s Working Knowledge newsletter outlines a better approach. The study’s author, Professor Ian Larkin, believes that firms can better motivate employees by leveraging the desire for peer recognition.

Keeping up with the Joneses

You don’t have to be a psychologist to know that people instinctively measure their own standing, satisfaction and performance relative to others. In a variety of studies, Larkin found that this trait is the most powerful workplace motivator. According to Larkin, “…in deciding how hard we work and how well we think we’re performing, social comparisons matter just as much [as financial incentives].” Comparing themselves to their peers incites employees to work harder in order to be recognized or to maintain prestige. Absolute compensation does matters, but only to a point.

Follow the leaders

Larkin studied the impact of social comparison at a large enterprise software firm. Hundreds of salespeople were offered one of two reward choices. One option was to defer receiving a commission on a sale till the end of a financial period. Deferral enabled the salesperson to receive a bonus payment but prevented them from recording a sale for a “Club” membership, a select group of the highest performing sales people. The other option was to record the sale and commission right away. This choice disqualified the salesperson from the commission bonus but improved their chances of attaining “Club” membership, which though prestigious, carried no meaningful financial benefit.

The findings were telling. Salespeople would forego the opportunity to make extra money if doing so would earn them positive recognition from their peers. Specifically, a sales representative was willing to give up nearly $30,000 in bonus (approximately 5% of their pay) to join the “Club.” Larkin believes club members “were not more likely to be promoted, leave for a better job, or make higher commissions in the future. It really was all about the recognition of and comparison with their peers, and many of them were willing to pay for it.”

The downside of comparison

On the other hand, social comparison also can lead to insecurity-driven cheating. Larkin studied author behavior in the large Social Science Research Network, an academic paper archive where authors can track statistics on how many times their paper has been downloaded, cited and viewed. Researchers found that authors were more likely to download their own papers repeatedly when a colleague’s paper was performing especially well on the site, or when a very similar paper to an author’s was newly released and received significant downloads. “Again, what was surprising to us was how little we found in terms of the economic reasons for doing this,” Larkin says. “By far, the biggest predictor of this behavior was fear of being socially inferior to one’s peers.”

Management implications

This research has significant ramifications for talent management. Companies need to more deeply consider the important role of peer comparison – now supercharged thanks to social networking – when designing compensation and measurement plans. Paying each employee solely according to his or her performance can backfire, since it can lead to resentment or unethical behavior by workers who believe they are underpaid compared with their colleagues. In order to better motivate employees, firms may want to consider more uniform and standardized salary scales, combined with ancillary incentive programs and contests that exploit the positive effects of social comparison.

For many companies, strategic planning is one of the most important and time-consuming exercises they undertake (hopefully) on a regular basis. Without a doubt, a well crafted strategic plan can improve competitiveness, business performance and morale. Since companies are not equally profitable or competitive it would not be a stretch to suggest that bad strategy is responsible for many of the differences between them.

Obviously, capabilities, competition and financial position have a major impact on plan success. However, I have learned through consulting to dozens of organizations that bad strategy can result from problems in their strategic planning approach – if there is one.

Weak thinking = poor plans

Strategic plans that miss the mark share many characteristics, including:

Aping one’s competition – Firms are often under the mistaken belief that they can go down the same strategic path as their competitors but somehow achieve better results. Management over-reliance on benchmarking and best practice analysis can easily lead to “copycat” strategies that do not deliver strategic differentiation and are not a good fit with the company’s capabilities and culture.

Over-emphasizing the customer – It’s natural for strategy to fall out of a focus on the customer, with lots of attention paid to the value proposition and branding. Giving short shrift to other vital areas of the business – supply chain, HR and customer service – creates significant operational and financial risks and reduces the likelihood that the company will capitalize on opportunities.

Using fuzzy metrics – In their zeal to measure progress, managers often create a laundry list of (often conflicting) goals, which masquerades as strategy. In other cases, firms neglect to choose any metrics making measurement impossible. Goals are the outcome, not the source, of a strategy.

Lacking practicality – Weak strategic plans are overly long, lack focus, are full of fluff and short on actions. All too often, manager’s substitute disciplined planning for blue sky thinking with no clear idea how to get there.

Vanilla approaches – Too much strategy is developed as a ‘fill in the box exercise’ using templates that have little relevance to the business challenges or available expertise. These exercises rarely feature the deep strategic thinking (e.g., counterfactual analysis or simulations) needed to craft high potential/low risk plans.

Hubris – Anyone who has ever participated in a SWOT analysis knows that managers regularly overestimate their firm’s strengths and underestimate their competitors, the potential threats they face, execution difficulties or the resources required. Furthermore, many cultures have an inward-looking bias that assumes their capabilities are market-beaters – which they usually are not.

An inability to choose – Strategy is as much about what not to do and as it is about what to do. High levels of management ego and consensus-based decision-making will create conditions where firms are unable to focus on a few strategic priorities, resulting in tepid or confusing plans.

Getting strategy right

How can senior leaders ensure that the optimal level of strategic thinking takes place without stressing the organization? I have distilled down 20 plus years of strategy development and research into 3 best practices for creating winning strategy:

Get the right people meeting often

Strategy is best developed by a senior team representing the key functions and lines of business. These individuals should have an intuitive sense of the business and where it is going – what the Germans call a fingersptizengefűhl or fingertip feel. To foster healthy debate, participants should hold key personality traits such as critical thinking, open communications and introspection as well as being regularly engaged in the process.

Utilize the right process

Without a doubt strategic frameworks like Porter’s Five Forces or SWOT analysis are useful to understand a firm’s market position and recognize opportunities. However, an effective planning approach should also include other tools such as business simulations, failure analysis and game theory. These techniques will help produce breakthrough ideation, challenge assumptions & bias and dissect competitive threats.

Now more than ever, creating a rich shopping “experience” is de rigueur for retailers seeking to be a destination of choice. Competing on the basis of the shopping experience – for example, delivering useful education, ‘best n class’ service, welcoming aesthetics and engaging entertainment – is not a novel idea. Many world class firms like Walt Disney, Southwest Airlines and Hard Rock Hotels have built significant businesses by leveraging an experiential-based business and marketing model. Its now the retail sector’s turn.

The evolving landscape

Recent market, technological and consumer developments have put the shopping experience at the center stage of retail marketing and operations. Stores and chains are increasingly seen by buyers as undifferentiated and unexciting; consumer spending has stalled and; pure-play Web retailers and online shopping tools have come into their own. At the same time, social networking’s popularity is exploding while bored, confused or fickle customers increasingly demand education, aesthetics and entertainment as part of their retail experience. To stay relevant and competitive particularly in the mid-market and premium segments, merchants will need to regularly orchestrate and promote compelling on and offline shopping memories. That memory itself will become the one of the products – i.e. the “experience.”

Evolving consumer behavior is a major factor impacting the customer experience. For one thing, sales channels are changing. Online sales, already 7% of all transactions, are forecasted to hit 15% by 2019 (source: Google). Although in its infancy, mobile commerce is expected to explode over the next few years. Increasingly, buying decisions are being made before the consumer visits the web or traditional store. Twenty years ago, 70-80% of all grocery purchasing decisions were made at a store. Today, it is less than 50% according to Joel Rubinson, former chief research officer of the Advertising Research Foundation. Typically, consumers will first research products online or canvas their friends and then decide what they will buy before going to a store. Or, they may forego a trip to the store altogether and make purchases via the Internet.

These changes have important consequences. When shoppers think about a brand, they now consider their entire buying and service experience. To be successful, marketing campaigns will now have to encompass and integrate all of the touch points of a company’s relationship with a consumer, including the first moment of contact when a product search begins, through the sale and service, and eventual product disposal and replacement. Though consumers have far more control over marketing messages than they ever have, retailers still have plenty of scope to guide opinions. That’s where experiential marketing comes in.

Who is getting it

Recently, a number of retailers have pushed marketing boundaries to create innovative experiences that integrate entertainment, social media, information and traditional advertising. Two examples were highlighted in a recent issue of the Knowledge@Wharton newsletter:

Macy’s

In 2010, Macy’s hit the mark with a couple of highly successful marketing programs that integrated a number of different experiential elements. During New York’s Fashion Week, the retailer provided customers with a “magic fitting booth,” which allowed them to “try on” virtual outfits and post images of themselves in their new clothes on Facebook. All year round, shoppers were able to use their phones to watch videos for fashion tips from designers and makeup artists. For the holiday season, Macy’s launched an animated website with an online tool enabling customers to send letters to Santa Claus. The site, which received more than 1M letters, was combined with a fundraising drive for a children’s charity and a mail order guide.

Incorporating the above elements – plus emerging mobile and location-based services – into the marketing and operational model will lead to further evolution of the shopping experience. To remain competitive and efficient, retailers will need to develop a holistic “customer experience” vision and strategy that integrates both traditional and new media, while addressing every point of the purchase/service continuum. Making this vision a reality will requires firms to revamp their organizational structure in order to bridge functional silos like digital marketing, public relations, store design, advertising and merchandising.

It’s no secret that leading firms such as Walmart, American Express, Capital One, Amazon and CarMax use cutting-edge Data Analytics to outflank competition, improve marketing & operational efficiencies and get closer to their customer’s needs. Making sense of internally generated data – it’s collection, synthesis and reporting – and turning it into learnings and actionable strategy is what DA is all about. All medium to large size companies generate reams of data on their customer habits, supply chain execution and financial performance. Yet, few of them derive as much value out of this vital asset as they could. What separates the pace setters from the laggards is the organizational environment underpinning the DA function, specifically, the level of management commitment, cultural readiness, and analytics & IT expertise.

A recent global survey (the second one in as many years) of 4,500 business executives by MIT’s Sloan Management Review explored key barriers and success drivers around DA. The results dovetail closely with our consulting experience in a number of data-intensive Canadian organizations. Below are some of the key findings and implications:

Analytics is growing in strategic importance

Increasingly, managers see analytics in strategic terms – outflanking competition, transforming customer relationships, sparking operational innovation – and not just a means of incrementally improving business performance. According to the survey, 58% of respondents viewed DA as a source of competitive advantage, up from 37% in the previous survey.

Not surprisingly, the study found that “experienced” firms are extracting significantly more benefit from DA than “basic” users. The most experienced DA companies (who utilize tools like data visualization, advanced modelling and sophisticated data mining) reported a 50% year-over-year improvement in competitiveness. Conversely, organizations that are employing basic functionality such as spreadsheet-based budgeting and forecasting cited a 5% year-over-year decline in competitive advantage. What are the lagging companies missing?

Leveraging analytics requires a trio of competencies

Many would suggest that deploying high performance hardware and software solutions is the best way to enhance DA capabilities and deliver a strong return on investment. Though resources and technology are important, the respondents – particularly the experienced users – reported that demonstrated competencies in 3 areas is more crucial:

The findings and our research confirms that there is no “typical” roadmap as to which competency is more important or should come first. They are all prerequisites.

Like many good things, there is a risk of over-indulging in DA before a company can fully digest its capabilities. For example, the sheer amount of data can slow down decision making by creating “analysis paralysis” as well as lead to significant data management and hardware/software costs. Leaders must set yearly DA priorities while ensuring their functional groups/divisions align to the data that directly impacts key metrics – versus what is merely “nice to have” information.

Data-oriented cultures have unique attributes

Analytics-focused companies go beyond clichés to incorporate specific cultural norms and practices that leverage analytics capabilities and learnings. A significant majority of respondents reported that data-oriented cultures had the following key elements:

View analytics as a core enabler of business strategy and day-to-day activities;

Senior leaders and middle manager champions regularly support DA across the organization;

An emphasis on communicating data and insights vertically and horizontally, especially to the front-line employees who need them on a daily basis;

The more experienced a firm is with DA, the greater is their ability to overcome internal challenges around sharing information, sustaining focus and coping with poor processes. Only 30% of experienced DA users considered organizational issues to be difficult to resolve compared with 60% of basic users.

Resources still matter

When it comes to enabling sophisticated analytical modelling, data visualization and knowledge management there is no free lunch. Companies still need the right methodologies and a robust, enterprise-wide IT infrastructure to effectively collect, process, report and manage the data. Furthermore, there must be sufficient analytics expertise and tools at both the manager and specialist levels to effectively manage the data through its life cycle as well as to leverage it strategically.

These findings have significant implications for all companies seeking to gain competitive advantage through analytics. Firstly, the more a firm leverages DA across and up/down the enterprise the more it will reap in terms of greater efficiencies, improved customer focus and enhanced performance. Secondly, each company will define the DA path that best suits their competitive position, business requirements and available resources. Although this article identified guiding principles, there is no ‘best practice’ template. Finally, mutually reinforcing factors such as consistent leadership, cultural receptivity, silo-busting information management systems and analytics expertise are essential to exploit the full potential of analytics.

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About Mitchell Osak

Mitchell is a management consultant with a passion for strategy development and execution. He has 20+ years of consulting and senior operational experience in a variety of Fortune 1000 firms. Mitchell is considered an "un-consultant" for his collaborative approach, expert problem solving and holistic strategic insights. His email is: mosak@quantaconsulting.com